Insight, analysis & opinion from Joe Paduda

Jan
20

Part D – the real problem

No, it is not going well. Despite what the spokespeople at HHS claim, enrollment in Medicare Part D has been a failure to date. Perhaps not a dismal failure, but certainly a lot further towards the “failure” end of the spectrum than the “exceeding our expectations” end. Here’s why, with thanks to Bob Laszewski for boiling down a complex topic to an understandable conclusion.
Enrollment goals
Only 21.3 million Medicare enrollees have the ability to make a decision on enrollment in Part D. Sure, there are a lot more Medicare eligibles, but many are covered under their employer’s plan (11 million), Medicaid (6.2 million of the so-called “dual eligibles”), and 4.5 million under MedicareAdvantage programs.
Of the 21.3 million, 17% have signed up so far. That’s right, 17%. As I have been noting for months, the stage is now set for big problems with Part D. You can read about the issues inherent in adverse selection here; briefly it is what happens when only sick people sign up for insurance.
In general insurers need at least 70% of eligibles to sign up to get a good spread of risk. If there is not a good spread of risk, it is highly likely that the only people who signed up are the ones who will gain more in benefits than they will pay in premiums. Result – insurers will lose money hand over fist on this deal (although their losses will be covered by the government, i.e. the taxpayer, for a period of about two years).
There continue to be problems with dual eligibles enrolled in the wrong plans, missing information, coverage issues, etc. But, as Bob points out, that is not the real problem (although it certainly is to those folks who can’t get their meds.) The real problem is taxpayers are going to foot the bill for a program that is a poster child for adverse selection.
What does this mean for you?
If you are a drug company, lots of profits. Eligibles, a great benefit. Taxpayers, bad news.


Jan
19

Managed care costs in workers comp

I have been on the west coast at a series of meetings with employers and insurers as well as managed care firms. A meeting earlier this week with a very large self-insured employer group highlghted some of the significant problems that still exist in work comp managed care. And these problems are not limited to California.
This group is self insured with a high deductible; the insurance, claims service, and managed care services are all provided by a top ten WC insurer. A common name, a fairly well-respected insurer.
This insurer is charging for medical bill review on a percentage of savings basis – that is, they get to keep 20% of the difference between what the provider bills and what is actually paid. Most of the providers in California bill way over the state fee schedule, which is all insurers legally have to pay in Ca. But this insurer wants to get paid an outrageous sum just for doing its job – for applying the law.
The right way to pay for bill review is on a flat rate basis – between $6 and $9 per bill.
Why? Simple – the percentage of savings method of pricing for bill review is costing this group five to ten times more than it should.
Note – I met with two gentlemen in FL last week who had a client with the identical problem – ridiculously, outrageously high charges for managed care – costs that were well in excess of the claims admin expense! This is not a rare occurence…
For more on this read my article on unintended consequences.
I bring this to your attention to encourage all to review how they are being charged for managed care, to scrutinize bills, referral rates, nurse case manager charges, and the like. Managed care has become a huge money maker for insurers and TPAs, and employers who fail to pay attention to this are being hammered.
What does this mean for you?
Hopefully not much – but if you aren’t paying attention you better start now.


Jan
19

Coventry’s work comp results and plans

More from the Coventry investor call last week…
Coventry views its businesses as in two main sectors – health plans or specialty businesses. Workers Comp and Medicaid are the specialty businesses.
CEO Dale Wolf sees substantial growth in 2006 in WC. According to Wolf, Workers Comp will grow from $215mm (Estimated) in 2005 to $240mm in 2006. While I guess anything is possible, I’m somewhat surprised about the level of optimism given First Health’s recent difficulties in the WC arena. On top of their losses at the Hartford and elsewhere, another large carrier has just moved a major state away from First Health. While I don’t pretend to know all that goes on with their new business and renewals, sources also indicate that renewal contracts are being negotiated on terms somewhat less favorable to FH.
FH’s bill review and network customers are large insurers and TPAs. Wolf views Coventry’s WC sector as a nicely profitable business with a dominant market position, based on what he views as the leading network in the country. The slides accompanying the presentation indicated Coventry is expecting a 12% growth rate in 2006. Again, I’m sure he knows a lot that I don’t. Or perhaps the market knows a few things that have not yet hit the executive suite at Coventry…
Notably, Wolf stated that Coventry will invest additional capital in this business.
My view is FH, which is yet to name a leader for the WC business unit, will be significantly challenged by Aetna which is gaining traction amongst payers for its very strong discounts and more approachable style. If Kaiser can promote its excellent On-the-Job program, United gets its act together, and the Blues make any additional inroads into WC, FH will have a real battle on its hands.
What does this mean for you?
The drive for top line from Coventry may help WC payers negotiate deals on more favorable terms as FH seeks to replace lost revenue from major insurers.


Jan
18

Bush’s focus on health care reform

Pres. Bush is said to be shifting his domestic agenda to one featuring health care reform at the top of the priority list. According to California HealthLine’s synopsis of an article in the Wall Street Journal,
“Bush likely will propose expansions of previous health care plans, rather than new federal spending, and the proposals likely will focus on market forces, tax credits, competition among providers and individual health insurance, rather than employer-sponsored coverage.”
Earlier, Bush shot down a proposal by his own Tax Reform Committee to limit the tax deductibility of health care benefits provided by employers, frustrating some GOP supporters while heartening insurers.
The news that Bush may start moving away from employer-sponsored coverage is intriguing. The administration is under increasing pressure from employers to do something about health care costs, and this change in focus appears to be the first indication of a possible (albeit long shot) shift in funding sources for working Americans.
I wouldn’t make too much of this, except it appears to be the only innovative initiative reported by the Journal.


Jan
17

Medicare Part D – the enrollment debacle

The news about the debacle that is the Medicare Part D roll-out has been well-publicized, along with the details that the individuals most heavily impacted are the 6 million dual-eligibles; those folks covered under both Medicaid and Medicare. They should have been automatically enrolled as of 1/1/06, but many states are experiencing big problems.
The key issue appears to be pharmacies are not able to access eligibility information in government databases through the normal EDI links, requiring the pharmacists to call Medicare where they spend hours on hold. Meanwhile, patients aren’t getting their drugs.
If this was just a case of a few scripts for Propecia or Viagra going astray, no big deal. But we’re talking beta blockers, insulin, cancer drugs, pain meds, scripts for Parkinson’s and the like. Life and death stuff.
Many states have provided emergency funding to enable these people to get their scripts. And this will get ironed out at some point.
The larger issue is the canary-in-the-mine nature of the problem. Many health care experts, politicians, and even some politicians who claim to be experts are putting a lot of faith in technology to root out fraud and abuse, enable better delivery of medical care, enhance evidence-based medicine and streamline the delivery of electronic health records. The Bush Administration in particular is highlighting technology as a big part of the “solution” to the health care crisis.
While there is no doubt technology can help address some of the problems in health care, history is also replete with examples of how solutions made problems worse.
Here’s hoping Sec. Leavitt and his colleagues at Health and Human Services get their act together before this gets really ugly.
What does this mean for you?
If you are a pharmacist, you don’t have time to read blogs unless you do so while on hold.


Jan
15

Coventry’s (health, Medicaid) results and plans

Dale Wolf CEO and President of Coventry, gave a 20+ minute overview of the company’s results for 2005 and plans for 2006 at an investor conference last week in San Francisco. The entire call can be heard until mid April 2006.
Wolf was notably proud of the results Coventry has delivered and the disciplined culture that in his view has been key to the company’s success. He noted that Coventry is now established as a national player – with local health plans in central and south Atlantic and central Midwestern states, the rest of the states are PPO via First Health. In total there are 17 plans in 20 states, 2.5 million members, and these plans derive 75% of revenues from commercial, rest from Medicare and Medicaid. Wolf made one brief mention of Coventry’s Consumer Directed Health Plans


Jan
13

Cost shifting to private payers

A new report published in Health Affairs provides an excellent history of cost-shifting, gives an excellent analogy and and quantifies its impact on private payers.
Cost shifting occurs when providers, typically hospitals, recoup lost revenue resulting from underpayments by some patients by charging other patients more. The article provides an excellent statistical summary of the issue, noting that private payers reimburse at a rate that is around 122% of costs, while Medicare is about 95% and Medicaid even lower.
Of course, the uninsured are at the bottom, with reimbursement rates at about 5% of charges.
While I have a couple minor arguments with the article’s authors, the overall message is quite clear – those of us with private health insurance are subsidizing the care for those covered under governmental programs or with no coverage at all. Yes, Virginia, we do have universal access, we just don’t have universal insurance.
This gives the lie to statements to the effect that we as a nation can’t afford universal coverage. In fact, we do have it, and pay for it via these hidden taxes.
Taxes that are quite inefficient, that are inappropriately targeted, and that penalize employers who offer health insurance (at rates their employees can afford) at the expense of those who do not. This is leading some states (Maryland is the most prominent) to try to force employers to offer health insurance at affordable costs. This is an effort on their part to get some employers’ workers off the Medicaid rolls.
What does this mean for you?
As uninsurance and underinsurance increases, so will these hidden taxes, further adding to the burden placed on employers and covered employees.


Jan
11

US Health spending up 7.9%

According to a study published in Health Affairs and reported by Fierce Healthcare, health care spending in the US rose by 7.9% in 2004, a slight decrease in the rate of increase from 2003’s 8.%. The US now spends 16% of GDP on health care; in comparison the next most profligate health care spender, Switzerland, spends a mere 11.1%.
By way of comparison, the overall US economy grew by 4.2% in 2004, so health care inflation was not quite twice as high.
Health care expenditures per person are now $6280…
One of the reasons for the drop in the rate of growth was a slowing in prescription drug inflation, which was up 8.2% in 2004. This was the first year drug cost inflation failed to break the double digits.
Conversely, spending on physicians increased by 9%, a significant bump up over historical rates. This was driven in large part by a big jump in Medicare’s payments to docs (11.1%). In turn, Medicare’s costs were driven by significantly higher utilization (docs ordered more tests, services, and procedures than the previous year).
Before we start jumping for joy at the slowing in overall medical inflation, consider this from California HealthLine:
“Paul Ginsberg, president of the Center for Studying Health System Change, said slowed spending increases in 2004 should be viewed within the context of abnormally high rates of growth in the immediately preceding years, when consumers forced insurers to ease restrictions on managed care.
This reminds me of the guy who is pounding his head into the brick wall, just because it feels so good when he stops. The relief we may be feeling is not the absence of pain, it is just a slight decrease. And we only feel it because last year’s pain was so bad.
What does this mean for you?
Most troubling is the increase in utilization for Medicare. The Medicare fee schedule has long been a bone of contention, and physicians may be increasing services as a way to make up for the poor per-service payment.
This cost shifting will affect private payers.


Jan
10

Medicare to pay docs more if…

Medicare says they will compensate doctors for underpaying them if Congress succesfully rescinds the cuts in reimbursement that went into effect the first of this year.
CMS says they will simply figure out how much docs should have been paid and cut them a single check to make up the difference (the cut is 4.4%).
This is predicated on the belief that Congress will actually rescind the SGR cuts. It does not mention how much this bookkeeping will cost the doctors or Medicare processors, who may have to apply this amount retrospectively to specific bills, providers, procedures, etc.
Meanwhile, the Medicare fee schedule is the basis for most workers comp and other state-set fee schedules. Sources indicate some payers are not changing their WC payment schedules to reflect the official decrease, others are, and all are wondering what to do if Congress does something wierd.
Glad I’m not in operations…
What does this mean for you?
More work, probably more mistakes, and absolutely no benefit or increased profit, productivity, or pleasure for anyone.


Jan
10

Patients’ access to physicians under Medicare

A new study released by the Centers for Studying Health System Change indicates that almost three-quarters of the nation’s physicians are still accepting Medicare patients. A relatively small fraction (3.4%) stated their practices were completely closed to all new Medicare patients. Both results were from the 2004-2005 period, and reflect a relatively static level of physician acceptance of Medicare patients.
Medicare access is roughly comparable to access by individuals with private insurance despite the fact that Medicare reimbursement is about 20% lower than commercial payers. The good news for providers is that this rate is much better than it has been; historically Medicare paid only about 71% of private payers’ reimbursement for similar procedures.
Interestingly, the volume of services provided to medicare patients continues to increase, with the latest statistics showing an 18% increase in minor procedures from 2003-2005, after an average 6% annual increase in preceding years.
Perhaps physicians consider themselves fortunate to have Medicare and not Medicaid patients. The state-federal run Medicaid program is the worst payer, with rates over 30% less than Medicare.
The report did not delve into Medicare access results.
What does this mean for you?
Medicaid continues to get the short end of the stick, as do its patients and providers.
The data on the sharp increase in utilization in Medicare is potentially troubling; it may represent cost-shifting as providers seek to maximize compensation through additional billing.


Joe Paduda is the principal of Health Strategy Associates

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